Really, Alan?

Paul Krugman picked up on Greenspan's latest nonsense at the Council on Foreign Relations.

But..I actually WATCHED Alan on CSPAN in the mid o' the night. I know, I know, save it for a beer.

What he said seems to me to expose extreme lack of macro understanding. It went like this:

The current US capital investment to cash flow ratio is the lowest since 1940. Ok, so companies are piling up cash, not productive investments. Nothing new here. I would suspect a lack of agg demand.

Then, and I do need to go read this I 'spose, something like the Godley triple balance thing...as if he discovered it out of whole cloth, its a paper for chris' sake. You know, I down, G up due to stimulus, all else equal. But, says he, this PROVES crowding out!

A confused voice from the audience: "Alan, didn't you just say firms have trillions, say 2 or 3, in cash just sitting there? How does that square with G crowding out?"

Al: Well, G is obviously sucking up all the S from the private sector, so nothing left to put into I.

This is neck snapping. The guy never got beyond Micro 1. As an undergrad.

I didn't know how to react. I was embarrassed. This idiot ran the Fed for how long? Even the dog howled.

I know this is a bit jargony; write me if you want me to expand/explain.